Should I set up a holdings company (an LLC, taxed as an S CORP that we'll call "PARENT") that owns ownership in other entities I work on?

This might not be best place to ask this question, but I lurk here quite a bit and am in need of serious help (and you guys generally have great feedback.

* I own 100 percent of PARENT * PARENT owns 90 percent in company A* PARENT owns 50 percent in company B (unrelated to A)* PARENT is licensed to publish a book that I own, so profits go to PARENT and then pays me as a distribution* Other things I work on will be added to PARENT overtime

Reasons for doing this: Possibly more protection, keeping all my assets under one company, and only needing 1 company to pay me a payroll (vs. 3 companies if I do them all separately, probably meaning less Self Employment Tax in the long run)

Possible problems/questions:

* What if Company B gets sued, is PARENT potentially liable? How about Company A, is it liable as well even though it's unrelated?* What if there wasn't a PARENT company, would the other company be liable since I'm linked to both?* Is there any unknown tax, or will it simply be a double flow-through entity for my rights in Company A and B? My fear here is that I'll be double-taxed, on the PARENT end and on Company A and B's end.* Since PARENT owns rights in A, B and my book, can I be on the payroll of only PARENT, with the rest being distributions paid to PARENT (and virtually me)?

AshleyVE said: * I own 100 percent of PARENT * PARENT owns 90 percent in company A* PARENT owns 50 percent in company B (unrelated to A)* PARENT is licensed to publish a book that I own, so profits go to PARENT and then pays me as a distribution* Other things I work on will be added to PARENT overtime

Reasons for doing this: Possibly more protection, keeping all my assets under one company, and only needing 1 company to pay me a payroll (vs. 3 companies if I do them all separately, probably meaning less Self Employment Tax in the long run)There will be employment, not self-employment, tax. But you don't need to have one company own the others to get that result: affiliated companies can work through a "common paymaster" -- i.e., one of the affiliates can agree to pay you your salary, and the others will reimburse that one for their shares of the cost.

But it doesn't affect what level of salary will be reasonable. Are you planning to earn more than the social security wage base through all of this? If not, there's not much to be saved.

Having any potentially appreciating asset, like your intellectual property, owned by a corporation (including an S corporation) isn't usually what you want. It greatly restricts your freedom to do other things with the asset without triggering tax in the future. For example, your heirs will eventually get a stepped-up basis in the stock of the S corporation, but it will still have a low basis in its assets at that point.

Will the subsidiaries be partnerships? An S corporation can have a corporation as a "qualified chapter S subsidiary," but only if it owns 100% of it; if you want flexibility for it to own less, they would become C corporations if they're corporations.

* What if Company B gets sued, is PARENT potentially liable? How about Company A, is it liable as well even though it's unrelated?Parent being liable for its subsidiary's debt is called "piercing the corporate veil" (if B is a corporation). I'm sure a search (here or on Google) will outline the risks. It does NOT happen routinely; it requires, basically, that you have done something wrong, like starting B with "inadequate" capital, or not obeying corporate formalities, or not adequately segregating its assets from those of the parent.

If Parent is liable for B's debts, then A being in turn liable is called "reverse piercing." That's even rarer, though it's possible if a court concludes that A and Parent treated their assets as if they were one company, like if Parent freely spent A's money without going through the procedure of having A distribute dividends to it.

But if that does not happen, Parent's creditors can take its assets, including its stock (or other ownership interest) in A.

* What if there wasn't a PARENT company, would the other company be liable since I'm linked to both?Basically the same outcome. If B's veil is pierced so that you're liable for its debts, then its creditors can sue you personally; they can take anything you own, including your interest in A; and, if A's veil is reverse-pierced, they can take A's assets directly, but that's a smaller issue.

And, again, if you play by the rules with B, its veil will not be pierced.

* Is there any unknown tax, or will it simply be a double flow-through entity for my rights in Company A and B? My fear here is that I'll be double-taxed, on the PARENT end and on Company A and B's end.There won't be tax at Parent if it's an S corporation. If its subsidiaries are either QSSS's (described above, for 100% subsidiaries) or disregarded entities/partnerships, there is no tax at them either. But, you would have more income tax freedom if everything were partnerships or disregarded.* Since PARENT owns rights in A, B and my book, can I be on the payroll of only PARENT, with the rest being distributions paid to PARENT (and virtually me)?Yes, as long as the company that employs you pays you a reasonable salary for the work that you do for all of the affiliates.

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